Consider the Basic AD/AS Macro Model,initially in a Long-Run Equilibrium

question 12

Multiple Choice

Consider the basic AD/AS macro model,initially in a long-run equilibrium.A positive AS shock will ________ the price level and ________ output in the short run.In the long run,the price level will ________ and output ________.

• A)decrease; decrease; decrease further; will decrease further
• B)decrease; increase; decrease further; will be restored to potential output
• C)decrease; increase; return to its initial level; will be restored to potential output
• D)increase; increase; decrease; will be restored to potential output
• E)increase; increase; return to its initial level; will be restored to potential output

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Definitions:

Capital Asset Pricing Model

The Capital Asset Pricing Model (CAPM) is a formula used to determine the expected return on an investment based on its risk relative to the market.

Abandonment Option

A provision in a contract that allows a party to withdraw from the contract before the completion or maturity date.

Monte Carlo Simulation

A computational technique that uses random sampling and statistical modeling to estimate mathematical functions and mimic the operation of complex systems.

Probability Distributions

Probability distributions describe the likelihood of different outcomes in a stochastic process or experiment.